Broadway Nat’l Bank v. Adams Case Brief

Summary of Broadway Nat’l Bank v. Adams, 133 Mass. 170, 43 Am. Rep. 504 (1882)

Facts: The Pl’s, Braodway, debt that was due from the Df, Adams is at issue. A trust was created by Adam’s brother by a will. That will stated $75 K would be held in trust, to pay semiannually the income of the trust’s investments to Df. The intent was that the use of the income shall not be anticipated by assignment, and if Df dies, the remainder would pass to his wife and issue so long as she remained single. If Df dies and wife remarried, the trust would be divided among all of Df’s wives and children or their children by representation equally.

Issue: Whether the settlor of a trust can secure the income from it to the object of his bounty by providing that it shall not be alienable by him or be subject to be taken by his creditor?

Holding: The income of a trust created for the benefit of the Df Adams cannot be reached by attachment, either at law or in equity, before it is paid to him.

Procedure: Bill in Equity was introduced to reach and apply payment of the Pl’s debt to Df’s income from trust. Bill dismissed.

Rule: A person having the entire right to dispose of property may settle it in trust in favor of another, w/ the provision that the income shall not be alienable by the beneficiary by anticipation, or be subject to be taken by his creditors in advance of its payment to him.

Rationale: The intention of the testator is clear. If the trustee was to pay the income to the Pl under order of the court, the trustee would be in violation of the terms. Therefore, the ct cannot order the trustee to pay the Pl unless the provisions and intent of the testator are unlawful.

C.L. Rule: a man cannot attach to a grant or transfer of property on the condition that it shall not be alienable. This doesn’t apply to the creation of a trust b/c the trust property passes to the trustee w/ all the incidents and attributes unimpaired. He takes the whole legal title w/ the power of alienation. Niether the principal or income is at any time inalienable.

If the intention of the founder of a trust is to give the equitable life tenant a qualified and limited estate in the income, the life tenant cannot alienate it by anticipation, and his creditors cannot reach it at law or equity. The testator’s intentions should be carried out unless they violate public policy. The only ground for holding that the intent is against public policy is if it defrauds creditors of the beneficiary.

Creditors are not so easily misled by a beneficiary of a trust, and creditors have no right to rely on property thus held. By the exercise of proper diligence they can ascertain the nature and extent of the estate. Creditors may reach all the property of the debtor not exempted by law, but they cannot reach the gift of the founder of a trust and take more than he has given.

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